Transnet heading for tariff overhaul

Companies / 7 March 2013, 02:09am

Emsie Ferreira

Transnet's container port in Durban. File photo: Simphiwe Mbokazi

Cape Town - Transnet CEO Brian Molefe said on Wednesday that he expected the mining sector to object to plans to hike cargo tariffs on dry bulk by more than two-thirds and reduce those on manufactured goods by almost half.

Molefe said the proposed tariff restructuring was imperative to encourage beneficiation and bring Transnet's pricing strategy in line with the government's economic policy and the National Development Plan.

It would see container cargo dues go down by 48 percent and those on dry bulk increase by 68 percent.

“We expect them to complain. They will make those comments to the regulator,” Molefe said on the sidelines of a colloquium on administered prices held by Parliament's portfolio committee on trade and industry.

He said the mining sector had been “hugely subsidised” by a tariff structure weighted in favour of raw exports, at the expense of the manufacturing and agricultural sectors.

Transnet's tariff application for 2013/14 also proposes imposing a minimum export cargo tariff of R6 a ton on all dry bulk and break bulk shipments. It shows that currently container shipment accounted for 52 percent of the Transnet National Ports Authority's (TNPA) revenue, and dry bulk for 18 percent.

Under the new regime, each would make up about a third of revenue.

Tau Morwe, the chief executive of TNPA, said the minimum cargo tariff would double the price of sending iron ore from Sishen to Saldanha.

Molefe added: “We send away our own God-given iron ore and then we have unemployment, but we can't process anything with our own hands.”

Peter Major, head of mining at Cadiz Corporate Solutions, said the proposed restructuring would be felt most by the iron ore, coal and manganese sectors. He said iron ore miners could readily absorb the blow since they were still cashing in on high prices and demand.

“They can double the price and they will put up with it,” he said, but warned coal producers were more vulnerable and so were manganese mines in Phalaborwa.

These might start looking around for local buyers if shipment costs threatened exports, Major said, but added that beneficiation incentives needed to be carefully structured and electricity supply and prices kept stable. He said a further challenge would be finding ready markets for finished goods.

Riad Khan, the CEO of the Ports Regulator of South Africa, said the deadline for comments on the tariff application was May 31, and a decision could be expected “a month or two” later.

Khan said the tariff changes the regulator ultimately approved for the manufacturing sector would prove “revenue neutral” for the TNPA.

“You will never need to subsidise the TNPA,” he told MPs.

Trade and Industry director general Lionel October welcomed the planned overhaul as “real progress”, and said it was the result of years of talks between the department and Transnet.

“Restructuring is necessary because our economy has been subsidising the mining sector regarding below-cost transport.”

He said the planned reductions for agricultural goods would prove a “huge incentive” for food-growers, and help restore their access to foreign markets.

“This will cut their costs by practically half.”

The department's deputy director general Garth Strachan said South Africa's container port charges counted among the highest in the world, ranging between 710 and 874 percent above the international norm. At the same time bulk commodities exporters were charged as little as half the international average, as was the case with coal.

The end result, Strachan said, was that South African manufacturers were effectively “subsidising” other TNPA operations. But he warned that they were also hobbled by high electricity prices, which were likely to increase by eight percent annually, and poor cargo handling in ports.

“These electricity prices and what we regard as grossly distorted port charges constitute serious dangers not only to competitiveness, but to the viability of the manufacturing sector.”

“The question is whether the mineral sector can absorb these costs on dry bulk? It has shrunk and now we're putting more pressure on.”

Greyling said it was doubtful Transnet needed a profit margin as big as it currently enjoyed.

He said it was using the same argument as Eskom for tariff hikes, namely the need for a healthy balance sheet to keep down the cost of borrowing to fund expansion projects, but this had damning consequences for the wider economy.

In September, the freight group posted a mid-year profit of R1.76-billion, a decrease of 24.5 percent.

Molefe told Sapa he was pleased that Transnet's R300-billion, seven-year expansion programme would be funded from its own balance sheet and R86-billion in borrowings.

He said R47-billion would go to TNPA, and “not a cent comes from the fiscus”. - Sapa